Citi economist who coined \’Grexit\’ no longer sees Greece exit next year

Citi chief economist Willem Buiter, the man credited with helping to coin the term \”Grexit,\” no longer expects Greece to leave the euro zone in 2014, but isn\’t giving up on the idea the forecast will be fulfilled at some point. In a note published Wednesday, Citi economists write:

In the euro area, we no longer expect Grexit in 2014 in our base case, although we still believe there is a fairly high risk of Grexit at some stage in coming years because of economic weakness and the escalating government debt ratio. The ECB is likely to cut rates again later this year, but we doubt that this move — and some probable tentative credit easing — will be enough to lift the euro area out of persistent weakness.

Reuters

Not going anywhere soon

Buiter last year had pegged the odds of a Grexit over the next 12-18 months at around 90% and said the most likely date was some time in the next \”2-3\” quarters.

That, of course, came before European Central Bank President Mario Draghi\’s summer pledge to do \”whatever it takes\” within the ECB\’s mandate to save the euro, and his subsequent unveiling of the yet-to-be-tapped bond-buying program known as outright monetary transactions, or OMT. The existence of the OMT has been credited with soothing troubled credit markets as Italian and Spanish yields dropped back from crisis levels and even Greek interest rates plummeted.

In Wednesday\’s update, Citi economists said they still see a \”fairly high risk\” of Grexit in coming years, but no longer put in their \”base case at any particular date.\” They continue:

This partly reflects a lower risk of Grexit, but also a sense that, with creditor nations taking a more relaxed line on fiscal targets and Greece’s coalition government holding together, triggers for Grexit as early as 2014 have receded markedly. The chosen date was always somewhat arbitrary, but to construct a consistent forecast we penciled in sizable Grexit-related uncertainties and financial strains around that date, hitting the 2014 growth outlook. That intensified headwind is now absent in our forecast.

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